On July 20, 2012, the Supreme Court of British Columbia rendered a judgment that sheds new light on the shareholder nomination process for electing the directors of a business corporation.1 In fact, the Court confirmed that a corporation's policy, which aimed to impose an advance nomination process at a shareholders' meeting, was reasonable and did not infringe shareholder rights with respect to electing the directors of a corporation.
The advance notice policy approved by the board of directors of Mundoro Capital Inc.,1 a corporation governed by the corporate legislation of British Columbia included a deadline by which time shareholders were required to submit, in writing, nominations for directors to be elected during the corporation's annual general meeting of shareholders. In particular, any nomination had to be received at least 30 days before and no more than 65 days prior to the meeting. Only such nominated persons would be eligible for election as directors.
One of Mundoro's shareholders brought an action against Mundoro in order to contest the validity of this policy. This concerned shareholder alleged namely that there was no legal basis for such a policy and further argued that its implementation constituted an attempt to limit the fundamental right of shareholders to elect directors. By ruling that the advance notice policy did not breach shareholder rights, the Court recognized that such a policy favored the implementation of an orderly nomination process, which would enable shareholders to make an informed decision.
Although such policies and their integration into a corporation's by-laws are currently not standard practice for reporting issuers in Canada, the Mundoro case could prompt issuers to amend their by-laws. In all likelihood, this policy would strengthen the directors nomination process by requiring a shareholder to send the issuer an advance notice, affording him sufficient time to analyze and respond in an informed manner to the proposed nominations. This tool could prevent nominations which are sometimes enforced by ambush or by proxy contest during annual shareholders meetings.
The Court's decision suggests that advance notice policies or the addition of a provision to that effect in a corporation's by-laws should be carefully drafted and established to strike a reasonable balance between the rights of shareholders to elect directors, and the responsibilities of the board to make sure that the nomination process for electing directors is respected.
An advance notice policy regarding the nomination process for electing directors can represent an important tool for a reporting issuer to ensure that all shareholders are treated fairly and that they are provided in a timely manner with relevant information pertaining to the nomination of directors.
Footnotes
1. Mundoro Capital Inc., 2012 BCSC 1090 [Mundoro Capital].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
